Closing stock: Value: Section 145A: Excise duty on sugar manufactured but not sold is not to be included in the value of the closing stock.

The assessee was engaged in the business of manufacture and sale of white sugar. In the A.Y. 2001-02, the Assessing Officer held that the excise duty on sugar manufactured but not sold and lying in closing stock was a liability incurred by the assessee u/s.145A(b) ought to have been considered for valuation and disallowed u/s.43B of the Act. Following the judgment of the Madhya Pradesh High Court in ACIT v. D & H Secheron Electrodes P. Ltd.; 173 Taxman 188 (MP), it was held that the Assessing Officer was not justified in adding excise duty to the price of the unsold sugar lying in stock on 31-3-2001.

On appeal by the Revenue the following question was raised before the Bombay High Court:

“Whether in the facts and in the circumstances of the case and in law, the ITAT was justified in holding that u/s.145A of the Income-tax Act, 1961 the excise duty element cannot be added to the value of unsold sugar lying in stock on the last day of the accounting year?”

The High Court held as under:

“(i) The argument of the Revenue is that the excise duty liability is incurred on manufacture of sugar and since section 145A(b) specifically used the expression ‘incurred’, the Tribunal ought to have held that the excise duty liability has to be taken into consideration in valuing the unsold sugar in stock on the last day of the accounting year.

(ii) The expression ‘incurred by the assessee’ in section 145A(b) is followed by the words ‘to bring the goods to the place of its location and condition as on the date of valuation’. Thus the expression incurred by the assessee’ relates to the liability determined as tax, duty, cess or fee payable in bringing the goods to the place of its location and condition of the goods. Explanation to section 145A(b) makes it further clear that the income chargeable under the head ‘profits and gains of business’ shall be adjusted by the amount paid as tax, duty, cess or fee. Therefore, the expression ‘incurred’ in section 145A(b) must be construed to mean the liability actually incurred by the assessee.

(iii) The Apex Court in the case of CCE v. Polyset Corporation & Anr.; 115 ELT 41 (SC) has held that the dutiability of excisable goods is determined with reference to the date of manufacture and the rate of excise duty payable has to be determined with reference to the date of clearance of the goods. Therefore, though the date of manufacture is the relevant date for dutiability, the relevant date for the duty liability is the date on which the goods are cleared. In other words, in respect of excisable goods manufactured and lying in stock, the excise duty liability would get crystallised on the date of clearance of the goods and not on the date of manufacture.

(iv) Therefore, till the date of clearance of the excisable goods, the excise duty payable on the said goods does not get crystallised and consequently the assessee cannot be said to have incurred the excise duty liability. In respect of the excisable goods lying in stock, no liability is determined as payable and consequently, there would be no question of incurring excise duty liability.

(v) In the present case, it is not in dispute that the manufactured sugar was lying in stock and the same were not cleared from the factory. Therefore, in the facts of the present case, the ITAT was justified in holding that in respect of unsold sugar lying in stock, central excise liability was not incurred and consequently the addition of excise duty made by the Assessing Officer to the value of the excisable goods was liable to be deleted.”